The Indian banking sector continues to reel under banking frauds with Allahabad Bank being the lastest to report Rs 688.27 crore fraud by a Ludhiana-based textile company, a PTI report says. The Kolkata-based bank has informed the bourses that it is engaged in National Company Law Tribunal (NCLT) proceedings to recover the amount. The bank has reported the incident as a fraud to banking regulator the Reserve Bank of India (RBI).
The 155-year-old banking institution had earlier reported fraud of more than Rs 1,775 crore by Bhushan Steel Limited. Allahabad Bank's share value was trading at Rs 42.45 by noon on Thursday, marking a decline of Rs 1.05 or 2.41 percent. The share had closed last week at Rs 47.15. In comparison, the sectoral index Nifty Bank declined 0.49 percent on Thursday.
The newly unearthed incident is the latest in a string of frauds that have been roiling India's banking sector, according to observers. Banking regulator Reserve Bank of India (RBI) has been resisting pressure from the Ministry of Finance to ease banking norms to increase liquidity in the economy that is losing its growth momentum. The regulator had declared war on mounting non-performing assets (NPAs) mandating the banks to start proceedings to declare NPAs with one day's default. However, government pressure and a Supreme Court order forced the RBI to dilute the norms and stipulated that the process has to start in one month's time.
During the 30-day review period, the lenders may decide on the resolution strategy, including the nature of the resolution plan (RP) and the approach to implementing the RP. The RBI has said in its framework for resolution of stressed assets, "Lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts."
The Supreme Court struck down the earlier guidelines in April after several companies challenged them claiming the time given was insufficient. Under the reframed norms, the banks have been advised to recognise incipient stress in loan accounts, immediately on default, by classifying them as special mention accounts (SMA). The lenders have been advised to initiate the process of implementing a resolution plan (RP) even before a default. The banks should report credit information on all borrowers with aggregate exposure of Rs 5 crore and above. The norms also suggest all creditors enter into an inter-creditor agreement (ICA) in cases where RP is to be implemented.
The news revelations will be a set back for the regulator's efforts to bring down NPAs. The surprise announcement came at a time when a recent Crisil report said the NPAs declined to 9.3 percent in March 2019, much faster than the RBI estimate and steeply down from 11.5 percent the year before, says a report.